Specifically, the industry saw pricing power of 6 percent in the fourth quarter driven by a stronger tobacco consumer, continued uptrading to premium brands and lower retail gas prices, explained Bonnie Herzog, managing director of tobacco, beverage and convenience store research at Wells Fargo Securities.

In addition, industry volume is only estimated to have declined 1.2 percent in the fourth quarter, despite "lapping a relatively tough year-over-year comp," she said.

Cigarettes' rebound is also coming as the vapor segment moderates. Consumers continue to be disillusioned by the vapor products on the market, signaling that innovation is critical, Herzog added.

"However, we do note there are some signs of stepped-up competitive activity given Reynolds American Inc.'s (RAI) push behind Newport and The Altria Group Inc. defending its turf," she said.

THE BIG THREE

As for the Big Three tobacco companies, Wells Fargo Securities' retailer contacts expect Newport to gain incremental share in 2016 under RAI’s ownership. This incremental share will likely be driven by greater participation in RAI's new Everyday Low Price (EDLP) retailer program, which is driving greater shelf space and share gains for its entire portfolio, according to Herzog.

"We believe RAI is now very well positioned to drive share gains and margin expansion while managing its growth brand pricing structure and accelerating growth for Newport and its entire portfolio," she said.

The survey also found that momentum behind Altria's Marlboro brand has softened against inroads by Newport. However, according to Herzog, Marlboro's new MHQ mobile app should drive consumer engagement. Wells Fargo Securities is encouraged by retailers' initial feedback on the app — 51 percent using the app in stores.

"Retailers cite improved customer engagement, ease of use, positive impact on Marlboro volume/sales, and point of differentiation, but are somewhat wary that it targets a rather narrow segment of the smoking population (tech savvy, younger) and conditions consumers to buy on coupon," she explained.

Even so, Wells Fargo Securities believes "MHQ's app-based profile has a leg up on hardware-driven platforms like RAI’s Spot You More program, which retailers so far find less appealing," Herzog stated.

Tobacco Talk also found that the majority of retailers (60 percent) believe ITG Brands LLC will lose cigarette share, up from 50 percent in the third quarter. Survey respondents also indicated they will trim ITG's shelf-space allocation by about a point this year, while raising RAI's by the same.

According to one retailer, "We expect ITG to be a non-player by the end of 2016. They are already close to falling behind Liggett."

Herzog explained that Wells Fargo Securities believes "ITG’s woes largely stem from a lack of focus given brand breadth and loss of leverage to powerhouses RAI and Altria. To counteract, ITG has increased promo support behind Winston, but retailers have yet to see the investment pay off. We believe a major strategic pivot is in order."